Imagine that you have found a property to buy that is a real bargain. That is being marketed at an incredible price.
Imagine you have done your calculations of the costs and taxes that the purchase will set you back and you decide that you have sufficient funds to buy it.
Imagine that some months after you have purchased the property you receive a letter demanding more tax, on top of what you had initially calculated.
Is this possible? Could this happen to you??
Well, the answer is YES. It is called:
A COMPARISON OF VALUES /COMPROBACIÓN DE VALORES.
“Imagine that some months after you have purchased the property you receive a letter demanding more tax, on top of what you had initially calculated”
WHAT IS A COMPARISON OF VALUES?
According to the law that regulates the Tax/Stamp Duty that is payable when a property is purchased, the administration has the power to REVIEW said Tax/Stamp Duty that you paid when you purchased the property.
Why do they review it? Because, according to the Law, although the real price of the property that you purchased is the figure in the DEEDS, there exists a minimum price for the property, which is the MARKET VALUE.
This means: That although the price that you have paid is the real price, is it is considered to be lower than the market value and they want you to pay the tax on the figure of the MARKET VALUE and not on the bargain price that you have bought at.
CAN IT BE APPEALED?
As is normal, the Law has also made provision in the system for you to put forward your defence.
The defence is based on appealing against the demand that you have received requesting more Tax/Stamp Duty, stating that the MARKET VALUE is that of the figure that is recorded in the deeds.
PLEASE NOTE: As you can imagine, the key here is to determine WHAT IS THE MARKET VALUE, and of course this is something really SUBJECTIVE and is based on many variables.
And of course, when something is SUBJECTIVE, it allows for the possibility of fighting and putting forward a defence.
HOW LONG DOE THE TAX OFFICE HAVE TO SEND A COMPARISON OF VALUES?
The comparison can be issued at any time during the following 4 years, from the date you purchased the property.
So, when a year goes by and you have not received a letter or comparison of values, don’t think that it will not arrive! They have four years in which to send it.
IS IT WORTH APPEALING?
Well, the answer is simple…. It depends on……….
If the amount of the demand is not excessively large, the fee of the Lawyer or Assessor who has to submit the appeal on your behalf, would cost more than the figure that the tax man is claiming from you.
If that were the case, my advice would be to just pay it.
But if it is a significant amount, I would evaluate whether it is worth appealing or not.
WHAT EXACTLY ARE THEY CLAIMING FROM YOU AND IS THERE A FINE TO PAY?
What they are claiming is the difference between the amount you have already paid and the amount that, according to them, you should have paid.
To this figure, you must add THE INTEREST ON THE DEBT (i.e. the money that was not paid to them has generated interest, and they want that too!)
There is no FINE levied on this comparison of values, because it is a matter of INTERPRETATION of the law and not something that you did intentionally to evade paying the tax (except for in some very individual cases)
WHAT TO DO WHEN YOU RECEIVE THE DEMAND
When you receive the letter, you can either appeal or pay it.
If you decide to pay it, you can either pay it in a one-off payment or you can request to pay it in instalments.
SOLUTION AND MY FINAL ADVICE
As always, I will say what I usually say, prevention is better than the cure.
How? The best form of avoiding this situation is by doing a PRIOR LEGAL AND FISCAL ANALYSIS, this is carried out by your lawyer before you purchase the property.
In the majority of Spain, there exists the possibility to calculate what the market value is in the eyes of the Administration. Your lawyer can do this job without any problem.
PLEASE NOTE: Many times, when a purchase is done without using a Lawyer, and if you employ a Real Estate Agent, this information is not given to you.
The truth is that the Estate Agent is not obliged to tell you (it is your Lawyer’s job to inform you). Although it is true, that some Estate Agents are real professionals, and they give you this EXTRA INFORMAITON.
FINAL ADVICE: To avoid surprises, when you do all your calculations on the costs and taxes payable on your property purchase, take into consideration the possibility of a comparison of values.
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